IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/42743.html
   My bibliography  Save this paper

Securities transaction tax and the stock market– an Indian experience

Author

Listed:
  • Sinha, Pankaj
  • Mathur, Kritika

Abstract

This paper studies the effect of Securities Transaction Tax (STT) on the behavior of the returns on the Indian stock market using a switching first order autocorrelation model. It is found that an increase in STT doesn’t influence the return on American Depository Receipts (ADRs) which are dually listed in United States of America and India. The increase in STT doesn’t have a major impact on the returns of the stocks listed on the National Stock Exchange in India whereas it influences the volume of traded shares. Volatility of stocks listed on the National Stock Exchange in India is affected by the change in tax level and thus investors switch from large and medium sized stocks to small sized stocks to mitigate the risk.

Suggested Citation

  • Sinha, Pankaj & Mathur, Kritika, 2012. "Securities transaction tax and the stock market– an Indian experience," MPRA Paper 42743, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42743
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/42743/1/MPRA_paper_42743.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anna Pomeranets & Daniel G. Weaver, 2011. "Security Transaction Taxes and Market Quality," Staff Working Papers 11-26, Bank of Canada.
    2. Andrew W. Lo & Harry Mamaysky & Jiang Wang, 2004. "Asset Prices and Trading Volume under Fixed Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 1054-1090, October.
    3. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
    4. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    5. Paul H. Kupiec, 1995. "A Securities Transactions Tax And Capital Market Efficiency," Contemporary Economic Policy, Western Economic Association International, vol. 13(1), pages 101-112, January.
    6. Sinha, Pankaj & Mathur, Kritika, 2012. "Evolution of security transaction tax in India," MPRA Paper 40165, University Library of Munich, Germany.
    7. Roll, R., 1989. "Price Volatility, International Market Links, And Their Implications For Regulatory Policies," Papers t10, Columbia - Center for Futures Markets.
    8. Umlauf, Steven R., 1993. "Transaction taxes and the behavior of the Swedish stock market," Journal of Financial Economics, Elsevier, vol. 33(2), pages 227-240, April.
    9. Hu, Shing-yang, 1998. "The effects of the stock transaction tax on the stock market - Experiences from Asian markets," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 347-364, August.
    10. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
    11. Shinhua Liu, 2007. "Securities Transaction Tax and Market Efficiency: Evidence from the Japanese Experience," Journal of Financial Services Research, Springer;Western Finance Association, vol. 32(3), pages 161-176, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hvozdyk, Lyudmyla & Rustanov, Serik, 2016. "The effect of financial transaction tax on market liquidity and volatility: An Italian perspective," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 62-78.
    2. Sinha, Pankaj & Mathur, Kritika, 2015. "Impact of Commodities Transaction Tax on Indian Commodity Futures," MPRA Paper 63677, University Library of Munich, Germany.
    3. Eichfelder, Sebastian & Lau, Mona, 2016. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," arqus Discussion Papers in Quantitative Tax Research 211, arqus - Arbeitskreis Quantitative Steuerlehre.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sinha, Pankaj & Mathur, Kritika, 2015. "Impact of Commodities Transaction Tax on Indian Commodity Futures," MPRA Paper 63677, University Library of Munich, Germany.
    2. Sanjay Sehgal & Tarunika Jain Agrawal, 2019. "Impact of Commodity Transaction Tax on Market Liquidity, Volatility, and Government Revenues: An Empirical Study for India," Vikalpa: The Journal for Decision Makers, , vol. 44(1), pages 12-29, March.
    3. Capelle-Blancard, Gunther & Havrylchyk, Olena, 2016. "The impact of the French securities transaction tax on market liquidity and volatility," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 166-178.
    4. Sinha, Pankaj & Mathur, Kritika, 2012. "Evolution of security transaction tax in India," MPRA Paper 40165, University Library of Munich, Germany.
    5. Anna Pomeranets & Daniel G. Weaver, 2011. "Security Transaction Taxes and Market Quality," Staff Working Papers 11-26, Bank of Canada.
    6. Deng, Yongheng & Liu, Xin & Wei, Shang-Jin, 2018. "One fundamental and two taxes: When does a Tobin tax reduce financial price volatility?," Journal of Financial Economics, Elsevier, vol. 130(3), pages 663-692.
    7. Hvozdyk, Lyudmyla & Rustanov, Serik, 2016. "The effect of financial transaction tax on market liquidity and volatility: An Italian perspective," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 62-78.
    8. Ms. Thornton Matheson, 2011. "Taxing Financial Transactions: Issues and Evidence," IMF Working Papers 2011/054, International Monetary Fund.
    9. Thornton Matheson, 2012. "Security transaction taxes: issues and evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 884-912, December.
    10. Michał Zator, 2014. "Transaction costs and volatility on Warsaw Stock Exchange: implications for financial transaction tax," Bank i Kredyt, Narodowy Bank Polski, vol. 45(4), pages 349-372.
    11. Benoît Carmichael & Jean Armand Gnagne & Kevin Moran, 2015. "Securities Transactions Taxes and Financial Crises," Cahiers de recherche 1515, CIRPEE.
    12. Robert Pollin & Dean Baker & Marc Schaberg, 2003. "Securities Transaction Taxes for U.S. Financial Markets," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 527-558, Fall.
    13. Eduardo Dávila, 2023. "Optimal Financial Transaction Taxes," Journal of Finance, American Finance Association, vol. 78(1), pages 5-61, February.
    14. repec:bla:ecinqu:v:51:y:2013:i:3:p:1731-1749 is not listed on IDEAS
    15. Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.
    16. Thomas Hemmelgarn & Gaëtan Nicodème & Bogdan Tasnadi & Pol Vermote, 2016. "Financial Transaction Taxes in the European Union," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(1), pages 217-240, March.
    17. Thornton Matheson, 2014. "The Effect of a Low-Rate Transaction Tax on a Highly Liquid Market," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(4), pages 487-510, December.
    18. Alonso, Miguel A. & Rallo, Juan Ramón & Romero, Alberto, 2013. "El efecto de los impuestos a las transacciones financieras en la estabilidad de los mercados de capital. Un debate sin resolver," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(317), pages 207-231, enero-mar.
    19. Peter Gomber & Martin Haferkorn & Kai Zimmermann, 2016. "Securities Transaction Tax and Market Quality – the Case of France," European Financial Management, European Financial Management Association, vol. 22(2), pages 313-337, March.
    20. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    21. Yuming Fu & Wenlan Qian & Bernard Yeung, 2016. "Speculative Investors and Transactions Tax: Evidence from the Housing Market," Management Science, INFORMS, vol. 62(11), pages 3254-3270, November.

    More about this item

    Keywords

    Securities Transaction Taxes; Stock Markets; Returns; Risk;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42743. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.